Sonnenblick on land acquisition spree

LOS ANGELES—Sonnenblick Development LLC has invested US$100 million during the past two years to acquire seven tracts of land on which to build luxury resorts in the United States.

The US$100 million represents all the capital raised by Sonnenblick as part of an equity fund put together “when everyone else was running away from the hotel development business,” Bob Sonnenblick, the company’s principal, said during a recent telephone interview.

The seven full-service projects are in various stages of development, Sonnenblick said. He declined to provide details about the resorts, such as location, until the properties have broken ground. He did say the resorts would be in waterfront locations with golf courses. The land was acquired in 2010 and 2011, he said in a follow-up email.

“I don’t want to say I’m building on the west side of Manhattan and then have 10 other guys looking around the west side of Manhattan,” he said. In his email, Sonnenblick said the properties would be held under such flags as Ritz-Carlton, Westin and Hyatt. His firm will hire third-parties to operate the hotels.

He also wrote the firm intends to hold the properties for the “long term.” In addition to the seven land buys, Sonnenblick said the firm is doing three more development deals on the grounds of two “major” U.S. airports. The smaller airport hotels are “3-star” projects, he added.

Los Angeles-based Sonnenblick has other hotel developments in its history. The firm also was behind the Loews Santa Monica in California; the Boca Raton Resort & Club, a Waldorf Astoria Resort in Florida; and the Ritz Carlton at Treasure Hill in Park City, Utah. Sonnenblick said his firm is again jumping into the hotel development game in an effort to get out in front of the sector’s recovery.

Opportunity in the downturn

The economic downturn provided an opportunity for Sonnenblick to go on its buying spree.

“The lowered land prices and construction costs and interest rates make a lot of these deals pencil out better than they have in the last four years,” he said. “That’s part of our industry that excites me; that and in addition to that the fact that 90% of my competition is bankrupt and shoe salesmen somewhere.”

Though terms are not as rosy as they were a few years ago during the heady days of 2007, Sonnenblick was able to secure financing for the developments. Owning the land free and clear provides some sway with the banks, he said. He did not disclose how much equity the firm is providing for the projects.

Construction financing also is available—to a certain extent, Sonnenblick said. “I don’t (consider) 55% of construction costs a great loan,” he said.

Sonnenblick believes the hotel financing environment will loosen in 2012. By the third or fourth quarter of 2012, Sonnenblick said lenders should begin to see there is little threat to them if they open up to providing loans at higher loan-to-value rates.

CMBS problems in 2012

Still, it could well be the financing market that hurts the hotel sector’s attempts at a comeback. The US$25 billion in commercial, mortgage- backed securities that mature next year might present a big problem for the industry, Sonnenblick said.

The industry will not be able to refinance that big a chunk of CMBS debt, and instead of worrying about their properties, hoteliers will begin worrying about their properties’ debt, he said. Not focusing on their hotels will cause operating performance at hotels to suffer, Sonnenblick said. “It takes your eyes off the ball.”